A Report on the Financial Strength of one of the Midwest's Best Liberal Arts Colleges

FINANCIAL STRENGTH REPORT

A Report on the Financial Strength of one of the Midwest’s Best Liberal Arts Colleges

FINANCIAL STRENGTH REPORT

Each year there are new reports of colleges closing, or engaging in a desperate fundraising campaign to defy the odds and keep the doors open for one more year. Prospective and current students, parents, alumni, public policy makers, accreditors and neighbors all have a stake in the financial health of institutions of higher education. These stakeholders should be aware and have a full understanding of a college’s financial health.

In response to questions from prospective students, alumni and others, Augustana College is pleased to share this report on its financial health.

First, I am proud of how strong, secure, and innovative Augustana is. For the fall of 2019, Augustana College was among a small handful of colleges in Illinois that is growing. Furthermore, Forbes recently judged Augustana’s financial health in the top 25% among all independent colleges in the country with a grade similar to colleges like: George Washington University, Denison University, Saint Louis University, Rhodes College, Creighton University, University of Denver, Rose-Hulman and Rochester Institute of Technology. Also, while many other colleges have no bond rating or have suffered a downgrade, Augustana has maintained a Baa Bond Rating with a stable outlook, further reinforcing the financial strength and stability of the college.

We know that colleges face many risks. The EY Parthenon Education Practice Group identified a set of risk factors for colleges, estimating that nearly 125 colleges exhibit four of more of these characteristics. These colleges are endangered and at risk of closing.

On the last page of this report, we share the risk factors and how Augustana College is strongly positioned. Augustana College has been aware of these risk factors for some time, and our leaders are constantly taking action to strengthen the financial health of the college to ensure its sustainability.

Steven C. Bahls. President

STRONG INNOVATIVE GROWING SECURE

FINANCIAL STRENGTH REPORT

I am pleased to share the following report because we know you are interested in the future of Augustana. I have confidence in Augustana College, and so should you.

11:1

AUGUSTANA COLLEGE HAS INVESTED IN PERSONNEL TO MAINTAIN A LOW STUDENT-FACULTY RATIO More than 60% of Augustana’s annual expenses go toward compensation and benefits. In fact, a 1% increase in the annual compensation costs $450,0000. Our faculty and staff are the most important asset the college has, and we consistently invest in our people. As a result of this underlying value, the college continues to provide competitive wage and insurance benefits to attract and retain top faculty.

Unlike many colleges, we’ve maintained our low student-faculty ratio, which currently is 11:1. We also have made further investments in student support and mentoring services to respond to changing demographics within the student body.

In addition to maintaining a low student-faculty ratio and preserving small classes, Augustana has added administrative and staff positions to help us more effectively serve today’s students. These include: Vice President for Diversity, Equity and Inclusion; Director of International Student and Scholar Services; Director of Student Well-Being and Resiliancy; Director of Disability Services; and a full-time Director of International and Off-Campus Programs.

ENDOWMENT

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FINANCIAL STRENGTH REPORT

X

STUDENT LOAN BELOW AVERAGE

AUGUSTANA COLLEGE HAS DOUBLED THE VALUE OF ITS ENDOWMENT SINCE 2003.

A college’s endowment is similar to an individual’s savings or retirement account. Gifts in support of the endowment are intended to sustain the college into the future. A small portion of the endowment is used annually to support college operations and fund scholarships. Augustana draws less than 5% of its endowment each year in support of the operation. Since 2003, Endowment Net Assets (equity) have increased from $76.2 million to $178.5 million—an increase of $102.3 million or 134%.

GRADUATES LEAVE AUGUSTANA WITH A BELOW-AVERAGE LOAN DEBT. Nationwide, the average debt load for students graduating with a bachelor’s degree is $32,600, compared to $32,201 for Augustana graduates. Since the recession, the annual net cost of attendance for first-year students has increased by less than 1%.

AUGUSTANA COLLEGE HAS STEADILY PAID DOWN DEBT AND HAS NOT TAKEN ON NEW DEBT SINCE 2012.

BT DE $100,000,000

IN CAMPUS IMPROVEMENTS

In terms of the college’s debt level, Augustana is in a stronger position than most comparison schools in the Midwest. The level of debt and financial position of the college is evaluated each year

by Moody’s credit agency. The college has retained its Baa1 credit rating over the last several years and continues to improve in many of the key measurements that drive upgrading conversations in the future.

AUGUSTANA COLLEGE HAS INVESTED NEARLY $100,000,000 IN CAMPUS IMPROVEMENTS SINCE 2003.

At a time when some campuses were closing buildings, Augustana was building and repurposing residence halls, academic buildings and athletic facilities. Campus improvements have been financed through a combination of philanthropic support, internal funds and a small amount of debt. Projects include: Swanson Commons, Parkander Residences, renovation of Carlsson Evald Hall, renovation of Old Main, Brunner Theatre Center, an addition to Hanson Hall of Science, the renovation of John Deere Planetarium, The Gerber Center, The Austin E. Knowlton Outdoor Athletic Complex, the expansion of the Betsey Brodahl Building, Thorson-Lucken Field and countless other projects related to academic and athletic programs.

In addition, where other colleges have been dropping athletic programs and reducing their major offerings in recent years, Augustana has added several programs. Most recently these include varsity women’s bowling and academic programs in data analytics, entertainment and media, and kinesiology.

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Each year since 2001, Augustana has set aside $5–$6 million to invest in campus additions, renovations and repairs. This practice provided Augustana with the necessary funds to fully renovate Westerlin Hall and build additional facilities to support our science and health programs.

FINANCIAL STRENGTH REPORT

56 MILLION $

AUGUSTANA COLLEGE HAS ALLOCATED ANNUAL FUNDS FOR CAMPUS IMPROVEMENTS, ADDITIONS AND REPAIRS.

$ $

AUGUSTANA COLLEGE HAS VERY STRONG DONOR SUPPORT AND GENEROUS ALUMNI. In 2014 Augustana completed a seven-year comprehensive campaign to raise $153,000,000. The college is currently engaged in a five-year $125,000,000 comprehensive campaign, and as of October 31, 2019 had already surpassed $100,000,000 in commitments. Nearly $3,000,000 in donations each year support annual operational goals.

AUGUSTANA COLLEGE HAS BUCKED NATIONWIDE ENROLLMENT TRENDS BY INVESTING IN FINANCIAL AID AND INTRODUCING INNOVATIVE SCHOLARSHIP PROGRAMS. Augustana remains committed to a financial aid program that meets the needs of a changing population. In addition to a very competitive merit-based scholarship program, the college offers financial awards that drive enrollment, such as the Campus Visit Grant and Out-of-State Award to make up for a generous in-state grant for residents from the State of Illinois. In addition, programs like Close the Gap, which involves donor sponsorship of a student with high financial need and exceptional academic ability, and the Ethics microscholarship program offered to students from United Township High School, make Augustana College affordable to students with higher financial need. A major component of the college’s current comprehensive fundraising campaign, AUGUSTANA NOW, is also focused on increasing the number of endowed awards in support of financial aid and scholarships.

FINANCIAL STRENGTH REPORT

AS

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TOTAL NET ASSETS AT AUGUSTANA COLLEGE HAVE INCREASED FROM $108.7 MILLION TO $302 MILLION SINCE 2003.

Since 2003, total net assets have increased from $108.7 million to $302 million—an increase of $193.3 million or 178%. The rate of inflation over this period was 39.5%, which is the equivalent of $151.7 million in net assets. Taking inflation into account, net assets have grown by 238.5%.

Tuition and Fees Other Educational Sources Federal and State Grants Private Gifts and Grants Other Income WHERE DOES IT GO? Room and Board The largest percentage of revenue comes fromReturn, tuitionNet and fees, Investment Assets Released Endowment Income and the largest expenses related to instruction and research.

REVENUE (2019)

Tuition and Fees Other Educational Sources Federal and State Grants Private Gifts and Grants Other Income Room and Board Investment Return, Net Assets Released Endowment Income

EXPENSES (2019)

Instruction and Research Academic Support Student Services Institutional Support Facilities

Instruction and Research Academic Support Student Services Institutional Support Facilities

FINANCIAL STRENGTH REPORT

EXPENSES (2019)

AUGUSTANA COLLEGE VIS-A-VIS EY PARTHENON RISK FACTORS

The EY Parthenon Education Practice Group identified a set of eight risk factors for colleges. These factors are similar to a “stress test” and are valuable risks for colleges to monitor. EY Parthenon estimates that nearly 125 colleges exhibit four or more of the following characteristics and are at risk of closing.

We thought it might be useful for you to see Augustana’s position when measured against these risks. Please note that Augustana exhibits only one* of the following eight factors.

Enrollment under 1,000 students—For the fall of 2019, Augustana’s full-time enrollment was 2,547. Where other colleges have seen reduced enrollment since the recession, Augustana’s has remained steady. Among U.S. News & World Report Top 100 National Liberal Arts Colleges, Augustana is among the largest (position 12).

No online programs—For the past several years, Augustana has been partnering with other independent colleges to expand online academic offerings, especially during summer session. Online education enables currently enrolled students to take an Augustana course while living at home during the summer months.

FINANCIAL STRENGTH REPORT

Annual tuition increases of more than 8%—The average tuition increase for Augustana over the last five years has been less than 3.5%.

*Tuition discount rate of more than 35%—Augustana’s discount rate is higher than what is perceived as healthy by EY Parthenon. However, Augustana College has consistently increased revenue through enrollment growth. While discount rates can be perceived as a significant risk factor, it is important to acknowledge that revenue and disciplined budget habits can counterbalance a higher discount rate. Furthermore, the discount rate is simply a measure of financial aid offered to students and can also be viewed as an effort to promote access. In short, this is the only one of the eight risk factors that Augustana must address.

Dependence upon tuition for more than 85% of revenue— According to the college’s most recent Moody’s Credit Opinion, student charges at Augustana represent 78% of total operating revenue.

Endowment that covers less than 33% of expenses— Augustana College’s endowment is $178,000,0000 and net operating budget is approximately $75,000,000; consequently, the college’s endowment covers more than twice the annual operating budget of the college. The endowment draw supporting Augustana operations is approximately $7,400,000, which is about 10% of the college operating resources.

Debt payments of more than 10% of expenses—Total debt service at the college is $4.1 million annually, which includes bond principal and interest payments. This represents just over 5% of total annual expenses. Augustana has been reducing overall debt steadily.

FINANCIAL STRENGTH REPORT

Deficit spending—Augustana College has maintained a disciplined approach to managing revenue and operating expenses. The college has not engaged in deficit spending in recent history going back to 2002.

FINANCIAL STRENGTH REPORT

RANKINGS AND RECOGNITION U.S. News and World Report:Top 100 (no. 92 of 233) liberal arts colleges nationally in 2019 No. 69 in Best Value Schools No. 43 in First-Year Experiences (tie) 36th among U.S. baccalaureate colleges for number of international students (Open Doors 2019) Best for the Money by College Factual: 46th out of 1,510 colleges (top 5% nationally) in 2019 Princeton Review: Best in the Midwest 2019 Kiplinger’s Best Values in liberal arts colleges for 2019 (#89)

No. 10 in all divisions for number of Academic All-Americans; No. 1 in our conference.

FINANCIAL STRENGTH REPORT

Money: Best Colleges by Value 2019

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